It's no shock that the Spanish housing market is horrible but hope has been, following the government's nationalization of various banks and creation of the 'bad bank' to soak up all the toxic crap those banks had on their books, that a recovery could blossom. It appears not - not at all. Not only are bad loans rising at record rates with house prices remaining down over 40% but now Reyal Urbis has filed for insolvency making it the nation's second largest bankruptcy as dozens of smaller firms have failed.

What makes this so important is the fact that the banks were unwilling to refinance the debt - seemingly comfortable with liquidation - summed up perfectly: "Many loans were refinanced one or two years ago, in the hope that things would get better, but it has not been the case and there is now more realism about the situation. Why would you extend a new loan today?"

Reuters reports further that the hard line taken with Reyal Urbis could be a taste of things to come as the firm leaves EUR3.6bn of debt and a property portfolio valued at a magical EUR 4.2bn - which we suggests the banks do not agree, and while the nation's bad bank is a major creditor, so it appears, is Tepper's Appaloosa holding a majestic EUR450mm in debt.

Spanish real estate firm Reyal Urbis has filed for insolvency, the second biggest casualty of the country's property market crash and a sign banks and the government may turn their backs on more indebted companies.

Dozens of property firm have already collapsed in Spain, where house prices have fallen around 40 percent from their 2007 peak. But until recently Spanish banks have refinanced billions of euros of debt in the hope of an economic upturn.

Liquidations are now more likely, bankers say, as prices continue to slide in a protracted recession and lenders, after a government-led clean-up, have set aside money to cover losses.

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Sources at three bank creditors told Reuters the hard line taken with Reyal Urbis could be a taste of things to come.

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"Many loans were refinanced one or two years ago, in the hope that things would get better, but it has not been the case and there is now more realism about the situation. Why would you extend a new loan today?"

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As well as Sareb, which is owed 785 million euros, the company's creditors include Spain's biggest banks - Santander , owed 550 million euros; BBVA, owed 120 million; and Banco Popular owed 220 million.

Barclays sold 450 million euros of its debt to U.S. hedge fund Appaloosa, while Royal Bank of Scotland is owed 300 million euros

Reyal Urbis, which valued its property portfolio at 4.2 billion euros in June 2012, said it would continue to operate as permitted by Spanish insolvency laws. Its insolvency petition now goes to court and its fate will be in the hands of a judge, who will decide whether to appoint independent administrators.

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"Sareb holds some of the debt but has said it is not in the business of refinancing so it will be interesting to see what they do. On top of that, any liquidation wouldn't impact lenders as harshly as it would have two or three years ago," the source said, referring to the funds set aside by banks to cover losses.

At the end of 2011, Reyal Urbis owned some 888 finished homes in a country where over 3 million homes lie empty. The company also had 8 million square metres of land for development and 237,000 square metres of commercial property, including offices, shopping centres, industrial property and hotels.

"The high amount of land and low level of income producing property in the portfolio is clearly contributing to the pressure Reyal Urbis is under," said Roger Cooke, managing director at property consultant Cushman & Wakefield in Spain.

Land and work in progress accounted for about 65 percent of its portfolio at the end of 2011, according to the company's last annual report.